Automobile Industry Security Report

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A SECURITY ANALYSIS REPORT ON

INDIAN AUTOMOBILE INDUSTRY
Submitted toProf. Urmil Shah
Submitted by-
Rahul Hedau (73) Sujit Kumar Jha (76) Sneha Manocha (81) Shilpa Sharma (87) Risabh Srivastava (110) Vinayak Chauhan (111) Sunny Dwivedi (114)
ITM Business School, Navi Mumbai
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ECONOMIC FACTORS IMPACTING AUTOMOBILE SECTOR 1. Excess Capacity. According to CSM Worldwide, an automotive research firm, in 2004 the estimated automotive industry global production capacity for light vehicles (about 74 million units) significantly exceeded global production of cars and trucks (about 60 million units). In North America and Europe, the two regions where the majority of revenue and profits are earned in the industry, excess capacity was an estimated 17% and 13%, respectively. CSM Worldwide projects that excess capacity conditions could continue for several more years. 2. Pricing Pressure. Excess capacity, coupled with a proliferation of new products being introduced in key segments by the industry, will keep pressure on manufacturers ability to increase prices on their products. In addition, the incremental new capacity in the United States by foreign manufacturers (so-called transplants) in recent years has contributed, and is likely to continue to contribute, to the severe pricing pressure in that market. In the United States, the reduction of real 3. Financing Options Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago. Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers take the plunge. The growth of the CC-segment in the past few years can be mainly credited to factors such as rise in income levels leading to increased affordability and simultaneous reduction in interest rates leading to lower EMIs. The drop in interest rates usually helps very few people to probably shift from the base model to a deluxe model. A larger shift happens if people are willing to take long-term loans, like five years instead of the earlier three-year loans. 4. Advertising and Marketing Due to the advertising techniques adopted by all the manufacturers in the CC-Segment the sales have risen drastically. It is all due to because the companies now a day are using even aggressive selling techniques for which they are even coping with the Film celebrities and Cricket stars, like Maruti has contracted Irfan Pathan as the brand ambassador of Zen and for Santro Hyundai has contracted for Shah Rukh Khan. And the companies are even trying to approach to the customer as to there demand for a vehicle at special interest loans, etc. They are using data according to the customers return and earning capacity for attracting the customers for their vehicles.
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5. Income of Consumer / Buyer The income of the consumer or buyer of the car is a very important factor of demand. In recent time we have seen that due to increase in the Income of the general public, there has been a shift from the Lower CC-segment cars to the Upper CC-segmentcars.2Due to the recent increase in the number of multinationals in India, the income level of the employees have risen drastically and has made CC-segment cars an entry level car for a lot of people. The average age of a CC-segment car owner has also dropped from 35 years to 31 years in India.
6. Increase In Affordability The demand for passenger cars is driven mainly by greater affordability, which in turn increases the aspiration level of the customers. Today with high amount of disposable income in the hand of Indian youth, who forms major portion of the population, PV market has larger addressable market. 7. Demographic Drivers Cars being inspirational products, purchase decisions are influenced by the overall economic environment. Increase in per capita income increases the consumption tendency of the customer. Growth in per capita income and rising aspirations and changing lifestyle is leading to increased preference for cars over two-wheelers, which is also having a positive rub off on car demand. 8. Exports The share of exports from domestic production is currently at 12-13%, which is much lower than current export hubs. Currently, Indias share of global passenger cars export volume stands at less than 1%. But India is fast emerging as a manufacturing hub for leading global car makers, and several manufacturers have already firmed up plans for setting up manufacturing bases in India, which will also be used for exports. 9. Presence Across Segments Manufacturers with presence across various product segments can ensure higher volume and better capacity utilization by using the common manufacturing capacity. Typically a customer upgrades from one segment to higher segment and the presence across various segments ensures that the company retains its existing customers. 10. Efficient Operations Competition in PV segment is very intense and this requires the existing players to initiate steps to reduce their cost of production. Effective and successful operation methods like platform commonality, reduction in vendor base and work force rationalization can help a company immensely.
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11. Wide Dealer Network and Availability of Finance A wide dealer network helps the company serve customers over wide geographical area. For e.g. Maruti has used its available wide service network as point of difference over competitors. The companies are tying up with the financial institutions having rural presence to provide additional financing options to customers in such areas. 12. Access to Latest Technologies Indian PV segment is highly competitive with as many as 14 players operating in it and more than 80 models on the offering. But still any new model launch meets with increase in sales volume for the company. Moreover in a time when a substantial portion of Indian customer is looking to upgrade in higher segment, companies with latest technologies and latest models will catch more attentions. 13. Factors of Production There are some factors of production which influence the supply of a car like Cost of Labour Cost Machinery Input Cost These factors influence the supply of a car largely. If the cost of the raw material (Steel, Spare Parts, Rubber) increases there will be an increase in the cost of production leading to decrease in profit margins. Costs like labour costs, machinery and input costs also influence the supply with the increase or decrease in these costs.7. 14. Government Policies and Taxes If there is a change in the government policies regarding the increase in the road tax charged or the tax which is to be paid per unit sold, the supply of a car will fluctuate with the nature of the change. Recently the government has reduced the custom duty on inputs and raw material from 20% to 15% which has increased the supply
ECONOMIC FACTORS IMPACTING CAPITAL MARKETS AS A WHOLE The capital market is affected by a range of factors. Some of the factors which influence capital market are as follows:-
1. Performance of domestic companies The performance of the companies or rather corporate earnings is one of the factors which have direct impact or effect on capital market in a country. Weak corporate earnings indicate that the demand for goods and services in the economy is less due to slow growth in per capita income of people. Because of slow growth in demand there is slow growth in employment which means slow growth in demand in the near future. Thus weak corporate earnings indicate average or not so good prospects for the economy as a whole in the near term. In such a scenario the investors (both domestic as well as foreign) would be wary to
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invest in the capital market and thus there is bear market like situation. The opposite case of it would be robust corporate earnings and its positive impact on the capital market. 2. Environmental Factors Environmental Factor in Indias context primarily means- Monsoon. In India around 60 % of agricultural production is dependent on monsoon. Thus there is heavy dependence on monsoon. The major chunk of agricultural production comes from the states of Punjab, Haryana & Uttar Pradesh. Thus deficient or delayed monsoon in this part of the country would directly affect the agricultural output in the country. Apart from monsoon other natural calamities like Floods, tsunami, drought, earthquake, etc. also have an impact on the capital market of a country. The Indian Met Department (IMD) on 24th June stated that India would receive only 93 % rainfall of Long Period average (LPA). This piece of news directly had an impact on Indian capital market with BSE Sensex falling by 0.5 % on the 25th June. The major losers were automakers and consumer goods firms since the below normal monsoon forecast triggered concerns that demand in the crucial rural heartland would take a hit. This is because a deficient monsoon could seriously squeeze rural incomes, reduce the demand for everything from motorbikes to soaps and worsen a slowing economy. 3. Macro Economic Numbers The macroeconomic numbers also influence the capital market. It includes Index of Industrial Production (IIP) which is released every month, annual Inflation number indicated by Wholesale Price Index (WPI) which is released every week, Export Import numbers which are declared every month, Core Industries growth rate. This macro economic indicators indicate the state of the economy and the direction in which the economy is headed and therefore impacts the capital market in India. 4. Global Cues In this world of globalization various economies are interdependent and interconnected. An event in one part of the world is bound to affect other parts of the world; however the magnitude and intensity of impact would vary. Thus capital market in India is also affected by developments in other parts of the world i.e. U.S. , Europe, Japan , etc. Global cues includes corporate earnings of MNCs, consumer confidence index in developed countries, jobless claims in developed countries, global growth outlook given by various agencies like IMF, economic growth of major economies, price of crude oil, credit rating of various economies given by Moodys, S & P, etc. An obvious example at this point in time would be that of subprime crisis & recession. Recession started in U.S. and some parts of the Europe in early 2008 .Since then it has impacted all the countries of the worlddeveloped, developing, less- developed and even emerging economies.
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5. Political stability and government policies For any economy to achieve and sustain growth it has to have political stability and progrowth government policies. This is because when there is political stability there is stability and consistency in governments attitude which is communicated through various government policies. The vice- versa is the case when there is no political stability .So capital market also reacts to the nature of government, attitude of government, and various policies of the government. 6. Growth prospectus of an economy When the national income of the country increases and per capita income of people increases it is said that the economy is growing. Higher income also means higher expenditure and higher savings. This augurs well for the economy as higher expenditure means higher demand and higher savings means higher investment. Thus when an economy is growing at a good pace capital market of the country attracts more money from investors, both from within and outside the country and vice -versa. So we can say that growth prospects of an economy do have an impact on capital markets. 7. Investor Sentiment and risk appetite Another factor which influences capital market is investor sentiment and their risk appetite. Even if the investors have the money to invest but if they are not confident about the returns from their investment, they may stay away from investment for some time. At the same time if the investors have low risk appetite , which they were having in global and Indian capital market some four to five months back due to global financial meltdown and recessionary situation in U.S. & some parts of Europe , they may stay away from investment and wait for the right time to come. Risk involved in this sector. Labour unrest and industrial action. Unexpected delays and cost overrun due to. Overlapping government jurisdiction. Corruptions and bureaucratic inefficiency. Slow down in government decision due to political instability. Raw material price. Restructuring of Automobile company Financial - Allocation and cash flow Supply Chain Operational Efficiency Raw Material prices
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Fuel Efficiency Segment Competitiveness Fuel Prices Demands Emerging markets
ANALYSIS OF PRESENT-FUTURE OPPORTUNITIES AND RISK IN THE AUTO SECTOR. Talking about the present and future trend and opportunity of auto industry we see, after being hit by spiraling raw material costs for several quarters, auto makers would have gained from softer commodity prices in the June quarter (Q1). But unfavorable and volatile currency movements played spoilsport. Prices of aluminum and steel dropped from the December quarter, as did that of rubber An 8% depreciation in the Indian rupee against the dollar in the period would have negated these gains because auto firms import key raw materials, which become more expensive. Passenger car maker Maruti Suzuki India Ltd and two-wheeler leader Hero MotoCorp Ltd are likely to take a hit on imported raw materials and components, besides royalty payments. A preview report on the sector by Antique Stock Broking Ltd says, Heros Japanese yen-denominated fixed royalty expense, which stood at around Rs. 205 Crore in 4QFY12 (fourth quarter of fiscal 2012) is likely to revert to the around Rs. 220 Crore level in the first quarter of FY13 (similar to the third quarter of FY12 levels). Of course, the magnitude of the impact will vary depending on the extent to which currency volatility has been hedged. For example, analyst reports express concern that Maruti has hedged its forex exposure up to the first six months of FY13, but given the currency volatility, fresh hedges are likely to be less attractive for the company. In the case of Bajaj Auto Ltd, a report by Prabhudas Lilladher Pvt. Ltd said that average realization per vehicle is expected to increase only by 2.4% year-on-year (y-o-y) as exports have been hedged at Rs. 51 to the dollar, restricting the benefit of a greater slide in the rupee. Further, the June quarter will not see any gains because of operating leverage on account of strong volumes. Most brokerage firms that track the top five listed companies in the auto universe (Tata Motors Ltd, Maruti, Bajaj, Hero and Mahindra and Mahindra Ltd) reckon that June quarter aggregate sales volume grew by a mere 8% over the year-ago quarter, the lowest quarterly performance in three years. Of course, the biggest slowdown was in the passenger car and commercial vehicle (medium and heavy truck) segments, while utility and light commercial vehicles fared a tad better. Twowheeler segment volumes slowed to single-digit y-o-y growth for the first time in these years.
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This will change for the better only if fuel price hikes are contained and if interest rates start falling. Undoubtedly, lower volumes and foreign currency volatility will weigh on the June quarters profitability. Brokerage firms consensus points to average 150-180 basis points dip in y-o-y operating margins. Meanwhile, even the profitability of firms such as Bajaj, which is better than others in the universe because of its three-wheeler sales, will also see a margin contraction as exports of these vehicles to Sri Lanka suffered a setback in the quarter. In the final analysis, the auto sector is likely to post a mere 8-10% y-o-y growth in net profit during the quarter. The Street already seems to have factored this into valuations. The BSE Auto Index, which was steadily outperforming the benchmark Sensex even as other sectoral indices were stumbling, has finally cooled off and underperformed in the last three months. The only trigger that can lift sentiment is higher volume, which in turn will be the result of lower cost of ownership of vehicles. Talking on risk factor the overall slowdown in automobile sector continues so its a risky sector to invest for now: The auto industry continued its slow momentum in June with single-digit volume growth, due to low growth in two-wheelers, modest volume of commercial vehicles (CVs) and fall in multipurpose vehicles (MPVs). While companies including Mahindra and Mahindra Ltd, Maruti Suzuki India Ltd and Honda Motorcycles and Scooters India (HMSI) registered robust volumes, Tata Motors Ltd, Bajaj Auto Ltd and TVS Motor Co. Ltd saw negative growth. This suggests that the growth of about 20% registered in March is unlikely to continue. Inventory at dealers end remained higher than normal, indicating low retail sales. The two-wheeler segment registered 6.7% year-on-year (y-o-y) growth in June led by a 19.2% yo-y growth in scooter sales. While the motorcycle segment witnessed 4.5% growth, moped sales grew 2% y-o-y. The commercial vehicles segment witnessed a muted 8.8% y-o-y growth with 12.7% y-o-y decline in medium and heavy commercial vehicles sales.
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Also see, on a slow drive? (Graphic)
The passenger vehicle segment rose 13% y-o-y in June due to growth of 44% y-o-y in utility vehicles, and 11.5% in cars, while MPVs remained subdued in the month.
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COMPANY ANALYSIS
LARGE CAP COMPANIES: MARUTI SUZUKI BSE: 532500 NSE: MARUTI CMP: 1179.9 (BSE) 1181.00 (NSE) SECTOR: Auto 1. Industry Outlook and Current company position Following India's growing openness, the arrival of new and existing models, easy availability of finance at relatively low rate of interest and price discounts offered by the dealers and manufacturers all have stirred the demand for vehicles and a strong growth of the Indian automobile industry. The Indian car industry is going from strength to strength. Fast, faster and fastest. And there is no turning back. International giants are zeroing on to India. Tata Motors, M&M, Marico, Tata Global, Titan and Havells India improve debt to equity ratio shows good prospect for Automobile companies. Maruti Suzuki keeps meeting demand for India and Swift, Dzire and new launch Ertiga are most popular with waiting period of more than 8 months. Maruti Suzuki to fast track its New Alto 800 launches; to be priced at around Rs 2 lakhs which would give direct competition to Tata Nano and Hyundai Eon.
2. Management Capabilities- Promoters and top management Problems between Management and Worker trade Union started when Maruti asked to sign good conduct bond when 62 workers were suspended due to indiscipline. After a rough spat with Trade Union the Manesar planed would be reopened with more than 500 workers sacked involved in the riot. Maruti Suzuki to operate violence-hit facility in Manesar under police protection Maruti Suzuki, which is facing huge production loss at violence-hit Manesar due to severe labour unrest, will get police protection on recommencement of production. Maruti Suzuki to make 150 cars a day at Manesar plant Market leader Maruti Suzuki had seen been the biggest place for poaching executive. Rakesh Srivastava a Zonal head at company recently joined Hyundai. Pankaj Sharma GM at True Value division joined VW operations head.
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3. Corporate Governance The Company strives to foster a corporate culture in which high standards of ethical behavior, individual accountability and transparent disclosure are ingrained in all its business dealings and shared by its Board of Directors, Management and Employees. The Company has established systems & procedures to ensure that its Board of Directors is well-informed and well-equipped to fulfill its overall responsibilities and to provide the management strategic direction it needs to create long-term shareholder value. On its Board, the Company has four non-Executive- Independent Directors of high stature from varied backgrounds, who bring with them rich experience and high ethical standards. In recent years, the Company has evolved a Control Self-Assessment mechanism to evaluate the effectiveness of internal controls over financial reporting. Key internal controls over financial reporting were identified and put to selfassessment by control owners in the form of Self-Assessment Questionnaires through a web based online tool called "Control Managers. With the successful implementation of the online Controls Self-Assessment framework, the Company has become one of the few companies in India to have a transparent framework for evaluating the effectiveness of internal controls over financial reporting. The initiative further reinforces the commitment of the Company to adopt best corporate governance practices
4. Shareholder Returns- ROE and Earnings growth
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Regarding Shareholding pattern shows that majority of holding is of Promoter and Promoter group which is 54% and then is Public Shareholding Institutional which FII and Public Shareholding Non institutional which are retailers.
ROE EPS
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 10.76 16.5 21.1 13.04 20.56 56.60 79.21 86.45 42.18 59.91
The EPS shows profitability of firm on per share basis. Over the years it has been seen that the EPS is more or less above 50. ROE shows how well the firm has used the resources of owners that are net worth.
5. FINANCIAL ANALYSIS Balance Sheet From balance sheet it can be seen that the Investments are increasing during the last few years as a result of which the depreciation has increased significantly because most of the investment is in machinery and other fixed assets. Sundry Debtors are constant that means payments are all received on time as per previous year records. Cash and bank balance shows that it increased drastically since 2 years because the investment which company did in past is yielding good returns and Net worth has also increased in the same pattern. Total current assets have increased which shows increase in net current assets and higher working capital required. Share Capital is has not changed but reserves and surplus has increased which shows large undistributed profits. In Auto Company sufficient inventories are required so that the plant has no halt. It can be seen that inventories are large enough because Maruti is manufacturing almost more than 150 cars per day. Income Statement with the increase in the market share and being the market leader the sales revenue of Maruti is increasing around 5 to 10 % every year except that last year is reduced due to high petrol prices and Interest rates on loans. Manufacturing expenses has increased due to due to high cost of steel and other raw material required for manufacturing. Interest is lower due to reduced debt and other loans. Cash Flow Profit before Tax is lower as compared to previous year because of cash from investment activities has lowered. Whereas cash from operating expenses has increased is an upper trend with the latest technology and inventory management. Cash from financing investment has lowered slows that the bonds and debentures which company issued turned to give negative returns.
ITM Business School, Navi Mumbai Page 12
6. RATIO ANALYSIS LIQUIDITY RATIO: 1. Current ratio current ratio measures firms short term solvency, it indicates the availability of current assets for every one rupee of current liability. A ratio greater than indicates the firm has more current assets than current liabilities. It can be seen that current ratio is above 1 so a good margin of safety is available for creditors. 2. Net working Capital It shows firms ability to meet its current obligation. Working capital is used to run daily operations. The working capital is reduced compared to last year because of lower production due to strike in plant due to worker union problems as result the production is lowered. ACTIVITY RATIO: 1. Inventory Turnover Indicates efficiency of firm in production and selling its product. It shows how rapidly inventory is getting replaced. Itcan be seen that Maruti is turning is inventory of finished goods into sales in 22.8 times a year. Days of inventory holding are 16 days. The ratio is maintained somewhat similar as previous years. 2. Total asset turnover ratio This ratio shows the firms ability in generating sales from total pool of assets. The ratio shows that Maruti generates sales of Rs. 2.22 from every one rupees of current and fixed asset. LEVERAGE RATIO: 1. Debt Equity ratio It can be seen that company has lower deb equity ratio that means company is using more of its shareholders firm to run its business rather than its debt. This will reduce risk. The ratio is also lower than 1 for all years. So risk is lesser. 2. Interest coverage This show about interest paying capability is company. The amount of loan company has taken is that company is position to pay its debt or equity. It is firms debt servicing capacity. The ratio has reduced almost to half compared to last 2 years. The one possible reason could be reduction is EBIT and higher interest payment for previous year. PROFITABILITY RATIO: 1. Net Profit Margin It indicates managements efficiency in manufacturing, administrating and selling the products. Net profit is reduced due to lower sales turnover and PAT as a result of reduced demand for cars due to high interest rates and hike in fuel prices. 2. Return on Asset Indicates amount of profit earned on each rupee of investment. The ratio is higher for previous year indicates good return and it has increased compared to last few years. Higher the better it is. 3. Return on Equity ROE indicates the return a shareholder gets on his investment. The PAT can be either used to give dividends or used in reserves and surplus depends on company .ROE is important for shareholders higher the ratio better it is and vice a versa. It can be seen that ratio is lower compared to previous year because of reduced PAT as a result of reduced sales.
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COMMON STOCK RATIO: 1. Dividend per share It shows the amount of dividend paid to the common stock holders a large number of potential and present investors are interested in it. It can be seen that DPS has remained constant for last years but increased for earlier years. 2. Dividend Payout ratio It indicates how much earnings company is ready to pay to its stockholders. The ratio has increased compared to last year. 7. FORECASTING Company Background Maruti Suzuki Ltd Maruti Suzuki (MSIL), a subsidiary of Suzuki Motor Corporation, Japan (with a54.2% stake), is the largest passenger car (PC) company in India, accounting for42.4% of the domestic PC market. MSIL derives ~75% of its overall sales from thesmall car segment and has a dominant position in the segment with a marketshare of ~50%, led by popular models like Alto, Wagon R and Swift. The companyoperates from two facilities in India (Gurgaon and Manesar) and is in the processof expanding its manufacturing capacity to 1.9mn units (currently 1.65mn) byFY2014. Also, MSIL has steadily increased its presence internationally and exportsnow account for the 11% of its overall sales volume. Historical data Domestic sales fell by 11.2 per cent to 1,006,316 units, Net Sales, including exports, stood at ` 347,059 million, a decline of 3.2 per cent over the previous year 2010. The market share in passenger vehicles declined from the past levels of about 45 per cent to 38.4 per cent. The difference between petrol and diesel prices shot up causing a further decline in the demand for petrol vehicles and a customer waitlist for diesel vehicles. The percentage of diesel vehicles in domestic passenger vehicle sales increased from 36 per cent in 2010-11 to 47 per cent in 2011-12. Four out of the top five selling models in India in the year were from the Maruti Suzuki stable. During the year, the Company launched refreshed variants of the Swift and the DZire. These brands have been on waiting lists for delivery since their launch. The market response to the new models has been satisfying and the combined volumes have shot up from about 22,000 units to over 30,000 units per month. During the year, the dealer sales network reached 1,100 outlets in 801 cities and total service points expanded to 2,958 workshops in 1,408 cities. Parts and accessories achieved a gross turnover of`23, 385 million, a growth of 16 per cent over the previous year. Non-European markets now account for 66 per cent of total exports upin the year, the Company exported 127,379 vehicles, a decline of 8 per cent over the previous year.
Over 100,000 man-hours of safety training were provided in 2011-12. The aggregate decline of 11.2 per cent in the domestic market in the year 2011 was accompanied by fluctuations in demand in each quarter, and also across models. The Company was impacted by lower sales owing to a tough macroeconomic scenario and higher cost owing to adverse foreign exchangerates and commodity price increases.
Assumptions A lower FY2013E/2014E/FY2015E volume assumption by ~4%/~2% to 1.21mn/1.34mn units, respectively, to factor in loss of production due to the lockout at Manesar plant. MSILs net sales grew by a strong 27.5% yoy to `10,778cr (11.3% higher than our estimates) driven by 21.3% yoy increase innet average realization. MSILs EBITDA margin declined 230bp yoy to 7.3% primarily due to 2.4% increase in other expenditure. Overall expenses increased by 10-15 % as rising cost of raw material and steel. MSIL posted 22.8% yoy decline in net profit at 424cr mainly on account of sharp decline in other income. Other income declined 39.0% yoy during the quarter mainly due to deferral in booking treasury income. Further higher interest cost also restricted bottomline growth. Believing that 2QFY2013 will be a difficult quarter for the company as volumes during the quarter will be impacted on account of the labor strike at the Manesar plant. Assuming a daily production loss of ~1,700 units per day, MSIL has already lost 18,00020,000 units of production since the violence erupted at the companys plant leading to a shutdown of facility. But since Manesar plant is opening in august a sales growth of approx. 10-15% is assumed over the years. The raw material costs as per previous year would increase about 10% which would increase expenses and increase operating cost. This also includes high cost of steel rise in inflation. The employee salary will increase approx. by 3-4% as man hours would increase due to high volume demand. Since new plant would be complete in Gurgaon b 2014 the investments would increase which would increase depreciation and amortization. Net PAT would decrease in FY13 due to workers strike but later on a constant growth of about 10-15% expected further years Total liability would increase due to expansion of plant and new R&D coming up in Haryana. The net working capital is expected to increase around 10% for further years. Total Assets would increase about 15 to 20% further with increase in cash and bank balance.
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Company in expected to give a dividend which would yield good returns for shareholders. Dividend of Rs.254 is assumed.
PROFIT AND LOSS STATEMENT (Rs. In Crore) FY11 Total Income % Change RM cost Manufacturing cost Employee expenses Others Total Expenditure EBIDTA % Change Depreciation and Amortization Interest Other Income PBT Tax PAT 35,849 23.2 28,338 515 704 3,423 32,980 2,869 -16.3 1,014 25 1,278 3,108 820 2,288 FY12 34,706 -3.2 28,066 493 844 3,672 33,074 1,632 -43.1% 1,138 55 1,708 2,147 511 1,636 FY13 42,887 23.6 34,138 643 1,072 4,675 40,528 2,359 44.5% 1,303 86 1,606 2,576 644 1,932 FY14 49,079 14.4 38,772 687 1,252 5,153 45,864 3,215 36.3% 1,486 86 1734 3,377 844 2,533 FY15 56440.85 15 44587.8 790.05 1439.8 5925.95 52743.6 3,697 15.0% 1708.9 98.9 1,734 3,623 971 2,653
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BALANCE SHEET
(Rs. In Crore) FY11 FY12

145 15,043 15,188 1,078 302 97 168 16,833
FY13
145 16,721 16,866 1,078 302 97 168 18,511
FY14
145 19,000 19,145 1,078 302 97 168 20,790
FY15
145 21850 21995 0 1240 347 97 168 23909
Sources of Funds Equity share capital Reserves and Surplus Shareholders Fund Total Loans Differed Tax liability Other long Term liabilities Provisions Total Liabilities
145 13,723 13,868 170 164 96 140 14,438
Gross Block Less: Depreciation Net Block Capital work in progress Investments Long term loans and advances Other noncurrent assets Total Current Assets Total Current Liabilities Net Current Assets Total Asset
11,172 6,208 4,964 1,429 5,107 1,255 47 5,625 3,987 1,638 14,438
14,461 7,347 7,114 1,018 6,147 1,671 26 6,325 5,469 856 16,833
16,495 8,650 7,845 1,320 6,760 1,671 26 7,527 6,638 889 18,511
18,804 10,135 8,669 1,128 7,592 1,671 26 9,085 7,382 1,703 20,790
21625 11655 9,969 1297 8731 1922 30 10448 8489 1,958 23909
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CASH FLOW (Rs. In Crore) FY11

Profit Before Tax Depreciation Change in Working capital Others Other Income Direct Tax Paid Cash Flow from Operations Increase/Decrease in Fixed Assets Increase/Decrease in Investments Other Income Cash Flow from Investments Issue of Equity Increase/Decrease in Loans Dividend Paid Others Cash Flow from financing Increase/Decrease in Cash Opening Cash Balance Closing Cash Balance 3,108 1,014 978 689 -1,278 -820 3,691 -1,806 2,070 1,278 1,542 0 -651 252 -2,423 -2,822 2,410 98 2,509
FY12
2,147 1,138 709 -133 -1,708 -511 1,642 -2,879 -1,041 1,708 -2,212 0 908 256 155 497 -72 2,509 2,436
FY13
2,576 1,303 733 0 -1,606 -644 2,362 -2,336 -613 1,606 -1,343 0 0 254 0 -254 766 2,436 3,202
FY14
3,377 1,486 128 0 -1,734 -844 2,413 -2,118 -832 1,734 -1,216 0 0 254 0 -254 942 3,202 4,144
FY15
3,623 1,709 169 0 -1,734 -844 2,923 -1,800 -1,139 1,734 -1,205 0 0 254 0 -254 1,464 4,144 5,608
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8. INVESTMENT RECOMMENDATIONS Based on growth of Maruti Suzuki in past and being 1 of the major market player in mid-size cars Maruti future prospects are really good. Even though problems have been with Manesar plant but things are gone settle down and plant is going to open by end of august and production will start with full safety of employees. EPS for Maruti Suzuki has increased only for the year 2011-12 when there was dip in sales due to higher fuel prices, interest rates and inflation. Further the demand doe diesel cars is increasing this was seen when 2011-12 the sales of diesel cars went past petrol cars. Maruti Suzuki is coming with a R&D center in Haryana for efficient car design on Indian roads so further expect good diesel cars from company. This would give a boost to its sales too. Also Maruti is coming up with New Alto in range of 2 Lakhs to give direct competition to Tata Nano and Hyundai EON. This would help Maruti to gain lost sales due to Marutis problem in Manesar plant. Even though theres a waiting period of 8 to 10 months for cars in Maruti people are ready to but cars and be a loyal customers. Maruti Suzukis Ertiga has been a wonder for company and its other best-selling include Swift and Dzire. It can be seen the ROE for past years have been significant to attract more equity players to trade. Only for year 2011-12 it reduced due to economic factors but overall returns are above all auto companies in India. Dividends are paid every year and even though there was dip in sales company paid a dividend of Rs.7.50 which was same as earlier year. Dividend is one of the most important return an investor gets investing in a company. The market capital of Maruti Suzuki is Rs. 34263 cr which is high enough to attract investors. The P/E is 22.10 which is high above industry average of 18.3. 1. 2. 3. 4. 5. 6. 7. 8. 9. Demand for cars in India is increasing due to Per capita near inflexion point for car demand. Suzuki focusing to make Maruti a small car manufacturing hub Structural and cyclical factors to keep market share under check Manesar plant issue sorted out so waiting for cars by customers would reduce Maruti Suzuki has new launch Cervo which would in near future and this car is also a midsize car. Management indicated that order book for Swift/Dzire/Ertiga stands at 55k/62k/32k units The company has hedged ~30% of USD/JPY exposure in FY13 while USD/INR exposure largely remains un-hedged (has natural hedge to some extent) Avg. discounts for the quarter stood at Rs 11,500/unit Share of diesel vehicle stood at 38% during the 1st quarter for year 2012-13
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CMP 1186.80 52 weeks High 1428.50 Low 905.50 Target price 1250 (12 months) With the current Market condition being volatile an investor who is having Maruti Suzuki shares must hold it because company is coming will resolve Manesar plant issues in a while and production will restart as a result market demand for Maruti cars would be satisfied. Investors who are planning to invest in company then this is best time to invest because they have to look into company from long term perspective. In long run company is planning to have new launch in mid-size and even company is coming up with diesel cars. Also government would reduce interest rates which would see an overall increase in the sales growth in the company. Overall it can concluded that from long-term point of view Maruti Suzuki is best to invest and current stock holders should hold their stock with lower limit of around 5% because wouldnt go below 2-3% in current volatile market.
VALUATION
2005 P/E ratio No. of Outstanding Shares PAT EPS Price of Share 14.26 2006 21.24 2007 15.17 2008 13.9 2009 18.5 2010 16.4 2011 15.9 2012 Average 22.58 17.24
28.89 1,932 66.87 1153.16
CMP of Maruti Suzuki is Rs. 1186.80 and based on Valuation method of Price earning Multiple Valuation the price of the stock is Rs.1153.16. It can be seen that stock is valued appropriate because the market currently is under volatility. Rating Buy rating under Long term Investment
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TATA MOTORS
BSE: 500570 NSE: TATAMOTORS CMP: 245.20 (BSE) 245.30 (NSE) SECTOR: Auto
1. Industry outlook and current company position Increase in Net worth Rs 13,979crs Cash & Cash Equivalents stood at Rs 25,730 crs (JLR GBP 2.43 bn, TML Rs 1,841 crs) Net Automotive Debt Equity as on March 31, 2012 stood at 0.25:1 vs 0.56:1 as on Dec 31, 2011 EPS (basic) stood at Rs 42.58 for FY12 as compared to Rs 31.05 for FY11 Cash & Cash Equivalents stood at Rs 1,841 crs FY 12 Capex spend Rs 3,118 crs Net Debt Equity as on Mar 31, 2012 stood at 0.72 vs 0.76 on Dec 31, 2011 Inventory days as on Mar 31, 2012 at ~ 31 vs 37 as on Dec 31,2011 Receivable days as on Mar 31, 2012 at ~ 18 vs 19 as on Dec 31,2011 The Board of Directors recommended a dividend of Rs 4 per Ordinary Share of Rs 2/- each and Rs 4.10 per A Ordinary share of Rs 2/- each for FY 2011-12. Jaguar Land rover Highest ever volumes 314,433 units up 29.1% Y-o-Y Issued 1.5 bn of unsecured bonds with 7-10 year term during FY 12 (GBP 1 bn in May 2011 & GBP 0.5 bn in March 2012). Completed an unsecured Revolving Credit Facilty (RCF) totaling 710m for 3-5 years with a consortium of banks. These facilities have significantly strengthened JLRs debt, capital and liquidity structure. Other subsidiaries of Tata Motors1. Tata motors Finance Issued 1.5 bn of unsecured bonds with 7-10 year term during FY 12 (GBP 1 bn in May 2011 & GBP 0.5 bn in March 2012). Completed an unsecured Revolving Credit Facilty (RCF) totaling 710m for 3-5 years with a consortium of banks. These facilities have significantly strengthened JLRs debt, capital and liquidity structure. 2. Tata technologies Revenue & PAT continued its upward trend. 2011=208.4
2012=139.0
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Offshore revenue strongly grew by 66% Strong Cash & cash equivalents Rs 489.9 crs as on March 31, 2012 Operational efficiency measures continue to improve performance.
3. Tata Daewoo Adverse product mix and Lower realization on exports due to appreciation were some of the major reasons which resulted in decline in EBITDA and PAT. EBITDA decreases from 52.3 to 39.4 and PAT decreases from 18.4 to 3.6. Continuing cost reduction efforts to control impact of material & other operating cost increases. 4. TML Drivelines Sales volumes increased on the back of growth in domestic CV market While overall cost pressures increased, EBITDA margins were supported by volumes and cost control initiatives. EBITDA increases from 179.7 to 351.6. PRESENT SCENARIO Tata motors redeemed overseas convertible bonds with a face value of $472.90 million by raising funds internally. Credit Suisse has downgraded Indian auto major Tata Motors after the company announced disappointing results for Q1. Tata Motors announced 12% increase in net profit for Q1 at Rs 2245 crore. Tata Motors Ltd has informed BSE that the Board of Directors on August 14, 2012 appointed Mr. Karl Slym as the Managing Director of the Company w.e.f. October 01, 2012. The performance of the truck market is forecast to accelerate, with an anticipated CAGR of 30.9% for the five-year period 2010 - 2015, which is expected to drive the market to a value of $61.7 billion by the end of 2015.
3. Corporate governanceAs part of the Tata group, the Companys philosophy on Corporate Governance is founded upon a rich legacy of fair, ethical and transparent governance practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behaviour. As a global organisation the Corporate Governance practices followed by the Company and its subsidiaries are compatible with international standards and best practices. Through the Governance mechanism in the Company, the Board alongwith its Committees undertake its fiduciary responsibilities to all its stakeholders by ensuring transparency, fairplay and independence in its decision making. It is divided mainly into three parts namely; Audit committee, remuneration committee, grievance committee there are also having sub committees.
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4. Shareholder Returns- ROE and Earnings growth-
Promoters have 41.56 % of stake in the shareholdings. Here Institution mainly comprises of FII and insurance companies and non institutional consists mainly of individuals rest other have small proportion in shareholdings. Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 41.33 48.74 31.30 -49.05 25.01 3.91 28.55 39.26 19.48 52.63
ROE EPS FINANCIAL ANALYSIS Ratio Analysis:
Investment Valuation ratios- From 2008 to 2011 there is increase in all investment ratios every year. But as we look at 2012 there is decline in all ratios which demotivates the investors. Dividend per share is declined from 20 to 4. It clearly shows the bad market condition flourishes in the market. Operating, net operating and free reserve face sharp decline. Profitability Ratios- There is ups and down from 2008 to 2010. From 2008 to 2009 there is decline in the ratios but from 2009 to 2010 again we can see increase in all ratios. As we can see today gross profit margin and net profit margin declines from 2010 to 2012. Here we can say that profit is declined since 2010, which is not a good indicator for Tata Motors. Return on asset is falling very disastrously means there is no proper utilization of asset. Liquidity and Solvency ratios Current Ratio- Current ratio is low since 2008 as we can estimate it from ratios. This shows that they are unable to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). Quick Ratio- Here quick ratio is less than 1 from starting which tells us that they are unable to pay their current liabilities. It is not a good sign for Tata motors. It is at lowest since 2008 i.e. at 0.40 Debt equity ratio- In 2011 and 2012 it is 0.80 and 0.57 respectively. Which is less and it has to be better.
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Management Efficiency ratios- Inventory turnover has seen upward and downward movements from 2008 to 2011. In comparison to 2011 it has fallen in 2012 from 13.86 to 13.57. Same happened in the case of debtors turnover is also face up and down movements throughout but increases from last year to 20.42 from 19.20. Asset turnover ratio increases with slow rate since 2009. This all ratios show that management is not consistent with their performance. They need to focus on that. Cash flow indicator ratio- When we look for dividend payout ratio it is increasing year by year on the other hand cash earnings retention ratio is declined, it clearly shows that retend earning is used to pay dividend because profit is on declining mode. In these case they dont want to demotivate investors and are paying their dividend in the condition of declined profit. Income Statement:
2011 2012 2013E 2014E 2015E
Net revenue Raw Material Gross Profit Employee Cost Other Expenses EBITDA Depr. & amortization Net Interest Other Income Profit before tax Total Tax Profit after tax Ex-Od items Adj. PAT Avg. Shares EPS (Rs.)
1,231,333 1,680,131 1,894,543 2,045,280 2,206,857 790,084 1,103,170 1,242,305 1,338,187 1,441,227 441,249 576,961 652,238 707,094 762,954 93,427 122,045 131,427 141,137 152,287 172,273 212,981 238,054 256,918 277,215 175,550 241,935 282,757 309,039 333,453 56,180 20,454 895 99,810 12,164 87,646 4,074 88,175 3,188.60 27.7 70,807 24,066 2,100 149,162 28,700 120,462 -9,320 119,862 3,335.10 35.9 74,530 26,556 2,300 183,971 36,095 147,876 780 147,096 3,335.10 44.1 80,450 27,066 2,500 204,023 40,700 163,323 1,014 162,309 3,335.10 48.7 86,806 29,204 2,698 220,141 43,915 176,226 1,094 175,131 3,599 53
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Balance sheet: 2011 Shareholder's Funds Total Debt Other Liabilities Total Liabilities Net Fixed Assets Goodwill Investments Net Current Assets Cash & Equivalents Other Current Assets Current Liabilities Total Assets 191,715 327,914 23,428 543,057 434,931 42,171 25,443 40,512 109,479 400,870 469,838 543,057 2012 2013E 2014E 2015E 284,414 357,839 373,378 389,583 455,392 464,892 475,892 490168.8 24,628 24,828 25,028 25778.84 764,433 847,559 874,298 905530.6 604,169 791,997 871,935 898093.1 42,171 40,171 45,171 50,592 45,505 48,505 51,505 54,698 72,588 -33,115 -94,314 -150,051 161,941 174,512 216,019 267,863 454,886 433,306 387,916 341,466 544,239 640,933 698,249 761,091 764,433 847,559 874,298 701,571
Cash Flow:
2,011 2,012 2013E 2014E 2015E
C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash FCFF FCFE
104,095.00 133,242.00 200,162.00 184,125.00 169,377 -70,657 -11,393 22,046 87,433 109,479 56,736 33,566 -182,858 102,077 52,462 109,479 161,941 61,316 188,793 -168,868 -18,723 12,571 161,941 174,511 174,032 183,532 -118,938 -18,067 47,120 -83,257 -17,435 68,685
174,511 199,178 216,019 267,863 229,528 302,977 240,528 315,091
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VALUATION
P/E ratio No. of Outstanding Shares PAT EPS Price of Share 2012 82.5 3189.69 12422.30 3.89 135.37 2011 48.9 2010 20.5 2009 9.6 2008 Average 12.3 34.76
As per calculation we can say that stock is over valuated. But stock can see upwards and downward movements. So at present we can suggest to sell the shares. PAT is 12422.3.
Analysis of financial statement and future predictions: Slower industrial growth, weak economic outlook, excise duty increases, and present concern deregulation of diesel prices impact overall demand. Freight rates dipped marginally; however, finance availability is adequate. Interest rates are expected to moderate. Demand pressure for some of the MHCV applications. A good monsoon and increase in infrastructure spending could propel demand for MHCV trucks. LCV / SCV continue to grow. Commenced production of Ace Zip in Dharwad, Magic Iris to follow. Services and agriculture sector along with rural connectivity, proliferation of hub & spoke model and demand of passenger applications is expected to drive growth in LCV/SCV segment. Company well placed with a wide and compelling product portfolio and customer support against the increasing competitive intensity in CVs. Competitive intensity and increasing costs poses significant challenge to the passenger vehicle industry, with higher inflation, interest costs, fuel price increases dampening the demand. Customer preference expected to continue to tend towards diesel vehicles. Significant market initiatives which have resulted in improving retail sales for passenger vehicles and market share in Q3 FY 12 and Q4 FY 12 in to continue. Future products in pipeline for FY 12 Variants from Prima range, World LCV range, ACE variants. Safari Storme unveiled in January 2012. Further expand sales and service network in India and enhanced customer care. Extend export potential. For overall industry, RM & component prices are expected to be under control. For the Company, material cost reductions and expense reduction focus will continue. Jaguar Land Rover-With Strong operating cash flows, expectation are to self support the growth strategy Capex and Investment plans expected to be about GBP 2 bn in FY 13.
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ASHOK LEYLAND
BSE Code: 500477 NSE Code: ASHOKLEY CMP: 21.95(BSE) 22.00(NSE) Sector: Transport Equipments 1. Industry Outlook and Current company position 2011-12 CV Industry performance: Low industrial production and a slowdown in mining in certain states impacted freight availability Higher interest rates impacted new truck sales MHCV grew by 9% LCVs continued to grow strongly by 26-29% As of 2011-12, Tata Motors remained the largest commercial vehicle exporter, with a 58.4 per cent share while, Mahindra and Mahindra (M&M), Ashok Leyland and Eicher Motors had a share of 23.1 per cent, 14 per cent and 3.3 per cent. However, In terms of growth in exports, Ashok Leyland registered the highest growth of a 45 per cent CAGR over 2006-07 to 2011-12, followed by M&M, which reported a 31 per cent CAGR in the same period. As macroeconomic indicators remain weak, commercial vehicles (CV) sales volumes are also expected to continue to moderate in 2012-13. CRISIL expect CV sales growth to slow further to 2-5 per cent (y-o-y) in 2012-13, from 6-8 per cent estimated in July 2012 due to a downward revision to our GDP growth outlook. CRISIL Research expects demand for buses to moderate, growing by 8-10 per cent from 2011-12 to 2016-17, after two years of strong growth. One-time schemes like JNNURM supported bus demand from STUs in the last few years combined with rise in demand from corporates and private operators. Going forward, demand will be driven by development of road infrastructure, institutional demand from schools and corporates (IT/ITes and BFSI verticals) and bus orders from state transport undertakings (STUs). Domestic tractor sales estimated to grow by 3-5 per cent in 2012-13. Fall in mandi prices and scanty rainfall in southern region will have negative impact on farm income.
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However, over a long-term, tractor sales are expected to grow by a CAGR of 8-10 per cent, with reducing replacement cycles, stable farm income and increased focus of government on agricultural and rural development. Operating margins for the next 2 years are expected to improve, mainly due to higher utilisation leading to lower fixed cost for 2011-12 and fall in raw material prices in 2012-13. Several exciting products lined up for launch in MDVs like Jan Bus-Worlds first front engine, single step entry bus with full flat floor and Indias first 5 axle rigid truck During 2011-12 to 2015-16, CRISIL Research expects an average of 14.7 km of national highways to be constructed /upgraded per day, at an estimated cost of Rs 2,535 billion. The construction of national highways is expected to increase the length to 5,773 kms in 2015-16 from 3,737 in 2011-12. So, with stricter implementation of the Supreme Court ban on overloading and increasing consolidation in the transportation industry, HCVs will continue to eat into the share of MCVs on long-haul routes. The development of highways is expected to replace MCVs by HCVs, use of which is currently restricted by inadequate road infrastructure. This will indeed contribute to increase in sale of Ashok Leyland trucks in this category. As the hub and spoke model proliferates, CRISIL Research expects SCV sales (forming 86 per cent of LCV sales) to post a CAGR of 17-20 per cent during 2010-11 to 2015-16. HCV sales (including tippers) will grow by 12-14 per cent during the same period. This would be faster than the 9-11 CAGR growth in overall MHCV sales.
2. SHAREHOLDING PATTERN- ROE AND EARNINGS GROWTH
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No. Name of the Shareholder
Total Shares held
A)1 Hinduja Automotive Ltd [Promoter Group] B)1 Life Insurance Corporation of India 2 The Master Trust Bank of Japan Ltd as Trustee of PCA Asia Oceania High Dividend Equity Mother Fund 3 Matthews India Fund 4 Bajaj Allianz Life Insurance Company Ltd 5 General Insurance Corporation of India 6 HDFC Standard Life Insurance Company Limited 7 Eastspring Investments India Equity Open Limited Total promoter holding Total Public Share Holdings
1,027,237,424 253,991,776 56,766,917
Shares as % of Total No. of Shares 38.61 9.55 2.13
40,022,554 51,236,220 30,150,000 37,724,344 45,479,459 1,027,237,424 1,276,081,570 357,357,640
1.5 1.93 1.13 1.42 1.71 38.61 47.96 13.43
ROE EPS
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08 19.57 23.80 18.27 9.05 22.30 2.13 4.75 3.18 1.43 3.53
The EPS shows profitability of firm on per share basis. Over the years it has been seen that the EPS is more or less above 2.5. ROE shows how well the firm has used the resources of owners that is net worth. This company shows a attractive ROE>15% consistently, which makes it good option for investment. 3. Corporate Governance The Board of Directors and the Management of Ashok Leyland are committed to the enhancement of shareholder value, Through sound business decisions, prudent financial management and high standards of ethics throughout the organization By ensuring transparency and professionalism in all decisions and transactions. Achieving excellence in Corporate Governance by conforming to, and exceeding wherever possible, the prevalent mandatory guidelines on Corporate Governance and by regularly reviewing the Board processes and the Management systems for further improvement The company has adopted a Code of Conduct for the members of the Board and senior management, who have all affirmed in writing their adherence to this Code.
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Ombudsman- Another significant step has been the appointment of an Ombudsman to deal with any references, complaints or grievances about the Company, its employees or its dealings. If the suppliers, employees or customers have any suggestions on governance issues or grievances or complaints on Ashok Leyland's practices - inclusive of its executives in various functions - which they feel ought to be raised with the Ombudsman and not with the usual channels of business, they may do so. It is advised that the regular business dealings should be through the usual business functional channels. The Ombudsman will not deal with them under normal circumstances.
4.
Ratio Analysis LIQUIDITY RATIO: 1. Current ratio current ratio measures firms short term solvency, it indicates the availability of current assets for every one rupee of current liability. A ratio of 0.88 last FY and continuously decreasing current ratio indicates that the firm has less current assets than current liabilities, which is not a encouraging factor for creditors. 2. Net working Capital It shows firms ability to meet its current obligation. Working capital is used to run daily operations. The working capital is increased substantially compared to last year due to lower sales. But this is notable that company shows huge volatility in net working capital position, which shows company`s uneven sales in the market. ACTIVITY RATIO: 1. Inventory Turnover Indicates efficiency of firm in production and selling its product. It shows how rapidly inventory is getting replaced. It can be seen that Ashok Leyland is turning is inventory of finished goods into sales in 6.63 times a year. The ratio is steadily improving as compared to previous years. 2. Total asset turnover ratio This ratio shows the firms ability in generating sales from total pool of assets. The ratio shows that Ashok Leyland generates sales of Rs. 2.75 from every one rupees of current and fixed asset, which is continuously improving compared to previous years. Leverage Ratio: 1. Debt Equity ratio It can be seen that company has lower deb equity ratio that means company is using more of its shareholders firm to run its business rather than its debt. The company has ratio of 0.83 and it is also lower than 1 for all years. So risk is lesser. 2. Interest coverage This show about interest paying capability is company. The amount of loan company has taken is that company is position to pay its debt or equity. It is firms debt servicing capacity. The ratio has reduced compared last 2 years but it is well above 1.5.So the company`s interest coverage is better than moderate.
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PROFITABILITY RATIO: 1. Net Profit Margin It indicates managements efficiency in manufacturing, administrating and selling the products. Net profit is reduced due to lower sales turnover and PAT as a result of reduced demand due to high interest rates and hike in fuel prices. 2. Return on Asset Indicates amount of profit earned on each rupee of investment. The ratio is lesser compared to previous years which indicate less return. 3. Return on Equity ROE indicates the return a shareholder gets on his investment. The PAT can be either used to give dividends or used in reserves and surplus depends on company .ROE is important for shareholders higher the ratio better it is and vice a versa. It can be seen that ratio is lower compared to previous year because of reduced PAT as a result of reduced sales. COMMON STOCK RATIO: 1. Earnings per share It is the amount of income earned during a period per share of common stock .It can be seen that EPS has remained constant to more or less about 2.5 for last years. 2. Dividend Payout ratio It indicates how much earnings company is ready to pay to its stockholders. The ratio has decreased in last 3 years, which may discourage investors. FORECAST Assumptions: Y-o-Y growth in M&HCVs YEAR 2010-11 2011-12 2012-13 2013-14(projected) 2014-15(projected)
Annual Growth 36 9 5 6 6
Y-o-Y growth in Buses YEAR 2010-11 2011-12 2012-13 2013-14(projected) 2014-15(projected)
Annual Growth 11 3 4 5 6
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While Total Industry Volume dipped 12% over last year market share is up 4% [65069 in Q1 FY 13 compared to Q1 FY 12- Actual 74698 Robust performance in volume terms 43% growth over the Q1 of the previous fiscal at 27,487 vehicles Reasons for the strong showing Continued pull for Dost MCV Strong marketing thrust across the country Strong performance of enhanced network (Now at 419 nationwide) New launches doing well e.g. 3118, ICV products Robustness in International Operations -Proposed FDI in retail
INCOME STATEMENT
Income Statement Y/e Net Revenue Raw Material Expenses gross profit employee cost other expenses EBITDA Depr. & Amortization Net Interest Other Income PBT Total Tax PAT Ex-Od items / Min. Int. Adjusted PAT Avg. Shares O/S (m) EPS (Rs.) 2011 2012E 2013E 2014E 2015E 1,11,177 1,30,996 1,60,675 1,73,929 1,93,061 81,210 96,488 1,20,254 1,30,045 1,44,350 29,967 34,508 40,421 43,885 48,712 9,597 10,461 11,768 12,710 14,108 8,192 10,459 12,796 13,683 15,051 12,178 13,589 15,856 17,491 19,415 2,674 3,503 3,758 3,937 4,213 1,636 2,307 2,570 2,421 2,469 151 90 250 260 270 8,019 7,869 9,778 11,394 12,419 1,705 1,495 1,858 2,165 2,360 6,314 6,374 7,921 9,229 10,060 -150 0 6,314 6,524 7,921 9,229 10,060 2,660.70 2,660.70 2,660.70 2,660.70 2,661 2.4 2.5 3 3.5 4
The net sales of Ashok Leyland is expected to increase in the coming years as the sales in HMV and cranes category is expected to grow at the rate more than 10% for years 2013-15.This increase will be mainly due to increasing infrastructure projects and increasing number of organized retail which will indeed result in requirement of more number of heavy and medium commercial motor vehicles
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BALANCE SHEET
Balance Sheet Y/e March Shareholder's Funds Total Debt Other Liabilities Total Liabilities Net Fixed Assets Investments Net Current Assets Cash & Equivalents Other Current Assets Current Liabilities Other Assets Total Assets 2011 2012E 2013E 2014E 2015E 39,629 42,891 46,920 52,258 59,052 25,683 35,450 33,950 33,450 34,119 5,338 6,291 6,325 6,325 6,325 70,650 84,632 87,195 92,033 98,475 49,918 52,415 52,657 51,720 52,754 12,300 16,300 18,300 19,800 20,988 8,390 15,853 16,159 20,433 23,498 1,795 6,043 5,636 7,322 8,420 41,877 49,875 59,363 64,870 69,411 35,283 40,065 48,840 51,759 53,933 43 64 80 80 80 70,650 84,632 87,195 92,033 98,475
CASH FLOW STATEMENT

Cash Flow Statement Y/e March C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash 2011 2012E 2013E 2014E 2015E 9,695 6,356 11,966 10,577 12,655 -13,620 -10,093 -6,982 -4,500 -2,500 531 7,984 -5,391 -4,391 -3,391 -3,394 4,248 -407 1,686 2,486 5,189 1,795 6,043 5,636 7,322 1,795 6,043 5,636 7,322 5834
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VALUATION:2005 P/E ratio 2006 2007 11.53 2008 2009 2010 2011 2012 Average 13.86
9.51 15.04
10.03 12.69 17.55 11.97 22.58
No. of Outstanding Shares 2660.68 PAT EPS 7,921 2.98 Last Traded Price 21.95
Price of Share
41.27
As we can see that the last traded price of Ashok Leyland Ltd was Rs. 21.95 as compared to current valuation of Rs. 41.27 .So, the share is undervalued we could suggest to invest in this stock to get good return in FY2012-13. Rating Buy rating under Long term Investment
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EICHER MOTORS BSE: 505200 NSE: EICHERMOTEQ CMP: 2214 (BSE) 2222.45 (NSE)
1. Current Company Position Eicher Motors Limited, incorporated in 1982, is the flagship company of the Eicher Group in India and a leading player in the Indian automobile industry. Its 50-50 joint venture with the Volvo group, VE Commercial Vehicles Limited, designs, manufactures and markets reliable, fuel-efficient commercial vehicles of high quality and modern technology, engineering components and provides engineering design solutions. Eicher Motors manufactures and markets the iconic Royal Enfield motorcycles. Eicher Motors recorded revenue of over USD 1 billion in 2010.
2. Corporate Governance: The code of conduct and the governance are based on the corporate principles and strong emphasis laid on transparency, accountability, integrity and compliance. The governance processes of the company include creation of empowered sub-committees of the Board to oversee the functions of executive management. These sub-committees of the Board mainly consist of non-executive directors and independent directors, which meet and deliberate regularly to discharge their obligations. There are various committees formed in order to keep track of various operations of the company and the Board. Some of the committees are: Audit Committee, Shareholders and investors grievance committee, compensation committee and Shares committee. Various disclosures that the Company abides by are: Related Party transactions, compliances by the company, code of conduct for Directors and Senior management, ceo/cfo certification, accounting treatment and risk management. The company has established a comprehensive risk management process that includes risk identification, risk assessment, risk mitigation and periodical monitoring. As part of the risk management mechanism, identified risks are regularly reviewed along with action plans by the management through monthly business review meetings. these are reported to the Board of directors on the yearly basis for the inputs and further suggestions for effective management of risks.
3. Shareholders Return ROE & Earnings Growth
The Shareholding pattern shows that maximum of the shares are held by the Promoters to the extent of 55.21 %, followed by Institutional Investors having 24.60%, Individuals having 10.97% and then by Body Corporate holding 9.22%. DEC11 DEC10 28.01 16.51 DEC09 29.64 9.66 DEC08 13.88 8.10 MAR07 22.4 13.75
EPS ROE
46.14 23.06
4. Liquidity & Solvency Ratios 1. Current Ratio: It is a measure of financial strength of a company. It indicates how much money in assets is likely to be converted to cash within one year in order to pay debts that come due during the same year. A current ratio anywhere above 1 is acceptable. Here, the current ratio has decreased to around 0.5 from last two years. For a company having current ratio below 1, it should have inventories that can immediately be converted into cash. Here the inventory turnover ratio has been around 17 i.e the holding period is around 21 days, which is good owing to its large inventory. 2. Working Capital: The companys working capital has increasingly decreased over a period of time and has eventually turned into negative. This has occurred due to comparative increase in current liabilities than current assets. Such negative working capital puts financial pressure on the company forcing in increased borrowings and eventually late payments, which is evident from balance sheet.
5. Management Efficiency Ratio 1. Inventory Turnover Ratio: It is a measure of how rapidly the inventory is getting replaced. Companys inventory turnover ratio is maintained around 17-18 times a year. Inventory holding period is around 21 days which is good for auto sector. 2. Total assets turnover Ratio: The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. This ratio considers all assets, current and fixed. The companys total assets turnover ratio has increased above 1. The ratio shows that the company generates sales of Rs. 1.24 from every one rupees of current and fixed asset. 6. Profitability Ratios 1. Net Profit Margin: It indicates managements efficiency in manufacturing, administrating and selling the products. Net profit has increased over the years owing to increased sales year-onyear. 2. Return on Asset: Indicates amount of profit earned on each rupee of investment. The ratio is higher for previous year indicates good return and it has increased compared to last few years. Higher the better it is. 3. Return on Equity: ROE indicates the return a shareholder gets on his investment. The PAT can be either used to give dividends or used in reserves and surplus depends on company .ROE is important for shareholders higher the ratio better it is and vice a versa. It can be seen that ratio is much higher (from 16.51 to 23.06) as compared to previous year because of increased PAT as a result of increased sales.
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7. Forecasting 1. Profit and Loss Statement

Y/E Dec (Rs cr) Total Income Total Expenditure Materials Costs Employee Costs Other Exp EBITDA Depn & Amort EBIT Other Income Interest Exp PBT (reported) Exceptional item Tax PAT (before minority) Minority Interest PAT Diluted EPS (Rs) CY2010 CY2011 CY2012E CY2013E CY2014E CY2015E 4,421 5,726 6,805 9,251 11,851 14,084 4,040 5,137 6,106 8,306 8,614 10,244 3,315 4,196 4,998 5,834 7,048 8,395 263 346 432 500 620 774 462 595 676 790 946 1,075 381 589 699 945 3,237 3,840 57 64 80 109 136 170 324 525 619 835 3,101 3,670 103 142 166 176 212 247 10 8 7 9 9 8 418 660 778 1,003 3,321 3,925 0 0 0 0 0 0 111 163 195 260 347 415 307 497 583 743 2,975 3,511 118 189 196 229 291 301 189 309 314 513 2,684 3,209 70.3 114 142.7 189.6 150 188
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2. Balance Sheet
Y/E Dec (Rs cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Deferred Tax Liabilities Total Loans Minority Interest Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Deferred Tax Assets Current Assets Cash Debtors Inventory Loans & Advances Other CA Current Liab & Prov Current Liabilities Provisions Net Current Assets Pre-operative Exp Total Assets CY2010 27 1,205 1,232 25 96 677 2,030 811 427 384 67 459 0 2,050 1,246 261 327 181 36 933 794 139 1,117 3 2,030 CY2011 27 1,466 1,493 64 50 838 2,446 989 484 504 395 513 0 2,350 1,197 343 428 339 42 1,334 1,185 150 1,016 18 2,446 CY2012E CY2013E CY2014E CY2015E 27 1,802 1,829 64 50 1,034 2,978 1,589 564 1,025 200 513 0 2,731 1,430 410 468 374 48 1,508 1,338 170 1,222 18 2,978 27 2,265 2,292 64 50 1,263 3,670 1,989 673 1,315 200 513 0 3,516 1,996 456 592 416 56 1,892 1,707 185 1,624 18 3,670 27 2,853 2,880 64 50 1,540 4,534 2,486 800 1,686 200 513 0 4,271 2,495 506 745 461 64 2,366 2,167 199 1,905 18 4,271 27 3,566 3,593 64 50 1,863 5,570 3,082 944 4,026 200 513 0 5,184 3,118 556 931 507 72 2,942 2,730 212 2,242 18 2,260
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3. Cash Flow Statement

Y/E Dec (Rs cr) Profit before tax Depreciation Change in Working Cap. Interest / Dividend (Net) Direct taxes paid Others Cash Flow from Ope. (Inc.)/ Dec. in Fixed Assets Interest/Divd Recd (Inc.)/ Dec. in Invest. Cash Flow from Investing Issue of Equity/(Buyback) Borrowings Dividend Paid (Incl. Tax) Cash Flow from Fin. Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY2010 CY2011 CY2012E CY2013E 418 660 778 1,003 57 64 80 109 37 -23 26 164 -76 -103 -159 -167 -83 -167 -195 -260 -17 -28 0 0 336 403 530 849 -131 104 -164 -192 9 -43 -35 -69 75 1,171 1,246 -417 132 -54 -340 2 -54 -61 -112 -48 1,246 1,197 -405 166 0 -239 0 -7 -51 -58 233 1,197 1,430 -400 176 0 -224 0 -9 -51 -60 566 1,430 1,996
Standalone sales increased 52.7% yoy to Rs255cr in 1QCY2012, reflecting the strong demand for Royal Enfield. The company witnessed a strong growth of 48.1% yoy in sales of two-wheelers despite significant moderation in industry growth rate. Further, average realization rates increased ~3% yoy reflecting price hikes and better product mix. Royal Enfield sales increased ~15% on a sequential basis. Royal Enfield has crossed 10,000 units landmark in sales in July 2012 for the first time. The demand for Royal Enfield remains strong even from smaller cities and towns. The company has increased its capacity to ~12,000 units per month. If demand continues to remain buoyant the company can further increase the capacity at its new plant in CY2013E. Robust top-line growth: Eicher Motors (EML) consolidated top-line saw a robust growth of 23.6% yoy to Rs1,585cr in 2QCY2012, which was in-line with our estimate. The top-line growth was driven by 48.1% yoy increase in sales of Royal Enfield to 27,519 units and 8.9% yoy increase in volumes of Commercial vehicles to 12,016 units while average realization rates was stable in both the segments. EBITDA margin declined: EMLs EBITDA saw a moderate growth of 11.1% yoy to Rs140cr due to significant increase in costs in VE Commercial Vehicles Ltd (VECV). Companys
standalone margin (Royal Enfield) increased from 13.9% in 1QCY2012 to 15.3% in 2QCY2012 (much better than our expectation of ~14%) to reach new high. Lower other income hurts PAT growth: Significant decline in other income and marginal increase in effective tax rate led to a 0.5% yoy decline in PAT to ~Rs76cr. Notably, Royal Enfields (companys standalone) PAT increased 11.7% yoy to Rs32cr driven by stronger operating performance.
8. Valuation
2005 13.5 2006 18.3 2007 16.03 2008 14.33 2009 16.69 2010 17.4 2011 16.46 2012 Average 15.86 16.07
P/E ratio No. of Outstanding Shares PAT EPS Price of Share
199.7 26,406 132.23 2125.07
EMLs sales were in-line with expectations. However, decline in VECV margins was discouraging. Nonetheless, it is expected that Royal Enfield will continue to be a strong growth driver in near term with strong growth in sales and higher margins. It is expected that VECV sales will improve going forward. Further, company has recently received order of 1,000 buses from Gujarat State Government which would enable the bus segment to maintain growth momentum. Joint Venture with Polaris Industries will provide new growth dimension to the company in the long term. It is expected that the company will report a top-line and PAT CAGR of 27% and 29% respectively for CY2011-CY2013E and so on. Thus, we maintain positive outlook on the company. Hence, we maintain our target price of Rs2,125.07 and our Buy recommendation on the stock. 9. Risks to the view Greater-than-expected slowdown in economy could lead to a lower demand for CV vehicles impacting the companys top-line. Inability to garner higher market share in M&HCV segment could impact the companys fortunes as it had earlier failed to achieve any success in M&HCV segment before joining hands with Volvo. Sustained high interest rates can reduce the demand in short-term.
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HERO MOTO CORP

BSE: 500182 NSE: HEROMOTOCO Bloomberg: HMCL: IN CMP: 1940.20 (BSE) 1941.50 (NSE)
1. Industry Outlook for Two- Wheelers: The increased consumer appetite for two-wheelers is especially promising. According to the data received from Census 2011, the share of Indian households owning two-wheelers spurted to 21%, having risen from 12% indicated in Census 2001. During the year, 15.4 million two-wheelers were sold; recording a growth of 15% compared with 13.4 million units sold a year earlier. Continuing the trend witnessed in the last few years, scooters emerged as the fastest growing years, scooters emerged as the fastest growing segment grew 24% with annual sales of 2.7 million, inching close to the 3-million mark, compared with 2.2 million scooters sold in the previous year. Motorcycle sales grew 14% to 11.9 million units. Domestic motorcycle sales crossed the 10 million mark during the year, compared with 9 million units sold earlier. Moped sales jumped 12% from over 0.7 million units to over 0.78 million units.
2. Company Overview: Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two - wheelers, based in India. In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and also, the 'World No.1' two-wheeler company in terms of unit volume sales in a calendar year. Hero MotoCorp Ltd. continues to maintain this position till date. Hero MotoCorp two wheelers are manufactured across three globally benchmarked manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in northern India. The third and the latest manufacturing plant is based at Haridwar, in the hill state of Uttrakhand.
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3. Management Capabilities: HMCL recently announced setting up a Global Parts Centre (GPC) at Neemrana in Rajasthan. With this expansion, total installed capacity of the company would be touching more than nine million units in two years time which is in line with the stated objective of reaching 10 million units in the next five years. HMCL reported sales of 4, 84,217 units of two-wheelers in the month of July 2012. The company also informed its supply chain partners that it will set up the fifth plant at Halol in the western India state of Gujarat, in addition to the fourth plant at Neemrana in Rajasthan.
4. Corporate Governance: The Companys philosophy of Corporate Governance stems from a belief that the Companys business strategy and plans should be consistent with the welfare of all its stakeholders, including shareholders. The Company has always strived to promote Good Governance practices, which ensure that: - A competent management team is at the helm of affairs; - The Board is strong with an optimum combination of Executive and NonExecutive (including Independent) Directors, who represent the interest of all stakeholders; - The Board is effective in monitoring and controlling the Companys affairs; - The Board is concerned about the Companys shareholders; and - The Management and Employees have a stable environment. Essence of Corporate Governance lies in the phrase Your Company (Shareholders).
5. Shareholder Returns: Mar 12 55.43 119.09 Mar 11 65.21 96.55 Mar 10 64.41 111.77 Mar 09 33.72 64.19 Mar 08 32.41 48.47
ROE EPS
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6. Financial Analysis: Income Statement Mar 11A Volumes (000) 5402 Net Sales 192,450 22.1 Change (%) Total 167,980 Expenditure EBITDA 24,603 4,024 Depreciation EBIT 20,579 Interest Cost -19 Other Income 4,249 PBT 24,048 4,769 Tax 19.8 Effective Rate (%) PAT 19,279 10.0 % of Net Sales (in INR Million) Mar 14E Mar 15E 7646 8601 300,369 345,424 14.7 15.0 256,280 293,610 44,179 12,105 32,074 100 6,618 38,592 9,387 24.3 29,205 9.7 51,814 12,528 36,286 120 7,676 43,842 7453 17.0 36,389 10.5
Mar 12A 6235 233,681 21.4 199,700 34,078 10,973 23,105 213 5,756 28,647 4,866 17.0 23,781 10.2
Mar 13E 6796 261,940 12.1 224,313 37,715 11,693 26,022 120 5,722 31,624 5,218 16.5 26,406 10.1
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Balance Sheet Share Capital Reserves Net Worth Deferred Tax Loans Capital Employed Gross Fixed Assets Less: Depreciation Net Fixed Assets Capital WIP Investments Current Assets, L & Advances Inventory Sundry Debtors Cash & Bank Loans & Advances Others Current Liabilities & Provisions Sundry Debtors Other Liabilities Provisions Net Current Assets Miscellaneous Expenditure Application of Funds Mar 11A 399 29,161 29,561 2,527 14,912 46,999 55,385 14,582 40,803 1,251 51,288 15,046 5,249 1,306 715 7,287 489 61,448 Mar 12A 399 42,499 42,898 2,083 10,114 55,095 50,679 17,175 33,504 5,000 39,643 20,743 6,756 2,723 768 10,092 404 43,854 Mar 13E 399 56,055 56,454 2,083 3,028 61,565 66,679 20,168 46,511 1,000 39,643 31,420 7,573 3,052 9,030 11,313 452 57,069
(INR Million) Mar 14E Mar15 399 399 71,240 90,474 71640 90,873 2,083 2,083 327 327 74,040 88,848 76,679 23,573 53,106 1,000 39,643 44,965 8,684 3,500 19,290 12,973 519 64,724 88180 27580 60,540 1,000 39,643 64,299 9,986 4,025 19,290 14,919 519 73,138
14,268 33,369 10,811 -46,402 60 46,999
22,932 9,962 10,960 -23,111 60 55,095
25,705 17,941 13,423 -25,648 60 61,565
29,476 20,573 14,675 -19,759 60 74,050
33,897 23,659 15,995 -8,839 60 88860
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Cash Flow Statement Profit before Tax Depreciation & Amortization Direct Taxes Paid (Inc)/ Dec in WC Interest/Dividend received Other items CF from Operating Activity Extraordinary Items CF after EO items (Inc)/Dec in FA+CWIP (Pur)/ Sale of Investment CF from Inv. Activity Inc/(Dec) in Debt Interest Paid Dividends Paid CF from Fin. Act Inc /(Dec) in Cash Add: Beginning Balance Closing Balance Mar 11A 24,048 4,024 -4,812 2,181 381 -1,760 24,061 -798 23,262 -3,292 -9,994 -13,286 -333 -158 -9,401 -9,892 84 632 716 Mar 12A 28,647 10,973 -4,866 23,238
(INR Million) Mar 13E Mar 14E 32,340 38,600 11,140 11,710 -5,498 11,057 -9,438 4,350
11,517 0 11,517 -7,423 11,645 4,222 -4,798 0 -10,514 -15,312 427 715 1,142
49,039 0 49,039 -18,400 0 -18,400 -7,086 0 -12,851 -19,936 10,703 768 11,471
45,222 0 45,222 -18,400 0 -18,400 -2,701 0 -14,019 -16,720 10,102 11,471 21,573
Analysis: Volumes grew 8% YoY (-1% QoQ) to 1.57m. Realization grew 3% YoY (0.7% QoQ) to INR37,929 (v/s est INR37,694), driven by price increase in Dec-11. Adj EBITDA margin at 10.8% declined 30bp QoQ (70bp YoY) on lag impact of adverse JPY movement on vendor imports. As a result, RM cost was higher 70bp QoQ and YoY. Royalty cost was lower by 30bp QoQ (due to favorable QoQ JPY movement). Other income came in 36% higher QoQ; however, higher tax restricted adj PAT to INR6.04b (v/s est INR6.25b), up 20% YoY (-1.5% QoQ). HMCL took price increase of ~1.5% on 2 May, to offset cost pressure of 4QFY12. This coupled with operating leverage would expand margin 50bp in FY13. It has indicated that it would be making announcement on its capacity addition plans in next 7-10 days. HMCL declared dividend of INR45/share (v/s est INR60 and INR105 in FY11).
4QFY12 volumes grew 8% YoY (-1% QoQ) to 1.57m led by strong 17% YoY growth in scooters. Motorcycle volumes grew 7.4% YoY. HMCL lost market share in domestic 2-wheeler industry by 90bp QoQ (160 YoY) to 44.5%. Realization improved 0.7% QoQ (3% YoY) to INR37, 929 driven by price hike taken in Dec-2011. As a result, revenues grew 11% YoY (flat QoQ) to INR59.8b (v/s est INR59.9b). 7. Valuation
2005 2006 2007 2008 13.5 18.3 16.03 14.33 2009 16.69 2010 17.4 2011 2012 Average 16.46 15.86 16.07
P/E ratio No. of Outstanding Shares PAT EPS Price of Share
199.7 26,406 132.23
2125.07
CMP of Hero MotoCorp is 1940.20 and as Hero MotoCorp is planning expansion plans by setting up new plants. The total capacity of Hero MotoCorp is expected to increase to more than 9 million units. Thus, Hero MotoCorp has positive signs of growth and the share price is expected to go to around 2125. Thus, we would give a rating of BUY for this company as this stock can be good for investment in long term.
8. Assign Target Price: CMP: 1940.2 Target Price: 2125.07 9. Investment Recommendations: Hero MotoCorp, erstwhile JV between Honda Corporation Japan and the Munjal Family is the market leader in domestic motorcycle market with ~47% market share, benefiting by a strong dealership network with good penetration in the rural areas as well. Post split from Honda, Hero MotoCorp is free to tap global opportunity in 2W. Volume growth is expected to remain stable, driven by recovery in urban markets and increasing penetration of its product in rural markets. We estimate volume growth of 10.4% in FY13 to 6.9m units.
Margins to improve from historical lows of FY12 at 11.0% to 11.5% in FY13E, driven by RM cost savings and operating leverage. With exit of Honda, Hero MotoCorp is free to explore global markets, which provides
Key Investment Risks: Strengthening of commodity prices to put pressure on margins. Maintaining market share in increasing competitive pressure (100cc segment), to restrict pricing power and impact margins. Honda's exit from Hero MotoCorp would result in focused approach of HMSI in domestic market. Recent Developments: It recently launched scooter 'Maestro' has received a good response. It plans to launch the 125cc Ignitor and 110cc Passion XPro (both showcased at Auto Expo 2012) along with 5-6 other models in FY13. Demand drivers in place, driven by increasing penetration in rural markets and replacement demand from urban markets Industry dynamics favorable, with focus on profitability rather than market share.
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TVS Motor Company limited

BSE: 532343, NSE: TVSMOTOR Bloomberg: TVSL: IN Stock Data Current Market Price (46) Target Price (50)
History of TVS
TVS Motor Company Ltd, the flagship company of TVS Group is the third largest two-wheeler manufacturer in India. The company manufactures a wide range of two-wheelers from mopeds to racing inspired motorcycles. The company is having their manufacturing plants at Hosur in Tamilnadu, Mysore in Karnataka and Solan in Himachal Pradesh. They are also having one unit located at Indonesia. Their subsidiaries include Sundaram Auto Components Ltd, TVS Motor Company (Europe) BV, TVS Motor (Singapore) Pte Ltd, PT TVS Motor Company, Indonesia, TVS Energy Ltd and TVS Housing Ltd. TVS Motor Company Ltd is a part of Sundaram Clayton group in TVS group of companies.
Company analysis:
Industry outlook and current company position:
During the global meltdown in 2008, auto companies suffered a double whammy with rapidly rising oil prices and escalating raw material costs coupled with a drastic drop in demand of their fuel guzzling SUVs due to changes in consumer buying habits. The Indian automobile industry gathered momentum rapidly, with Indian Automotive citing April 2009's overall vehicle sales rising by 9.83 percent year-on-year. The automotive industry remains one of the highest revenue-earning industries in India and contributed over 5% to Indias GDP in 2009, providing direct and indirect employment to more than 13 million people. The market outlook for the industry remains promising, especially in the small car segment.
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The Indian automobile market is currently dominated by the two-wheeler segment but with an expanding middle class population, growing earning power and industrial development. TVS has recently launched 2012 edition of Apache series RTR, which is accepted well by the consumers. TVS is planning to launch a series of new products in FY 2013, along withupgradation of existing product. One new executive segment motorcycle will be launched in august(this) 2012. It is in talk with BMWs motorcycle division for a technology tie up. It is in top gear after initiating the talk with BMW.
Management capabilities:
TVS Motor Company Ltd has announced a fire broke out in the early hours of July 29, 2012 in the paint shop in one of the Company's plants at Hosur. The plant that suffered damage has been adequately insured. Production is not expected to be disrupted, in view of the availability of spare capacity. The extent of damage and possibility of restoring the damaged unit to normalcy as early as possible are being assessed. Daily work management consists of defining and monitoring key processes, ensuring that they meet set targets, detecting abnormalities and preventing their recurrence. TVS Motor encourages continuous improvement in all aspects of work, using Cross Functional Teams (CFT), Supervisory Improvement Teams (SIT) Quality Control Circles (QCC) and suggestion schemes. Work in the line with principal of kaizen ( Japanese technique) and TQM(Total Quality Management). The management philosophy is based on five pillars of TQM (Total Quality Management) which rests on the foundation of Total Employee Involvement, daily management and Kaizen (Continuous improvement).
Corporate governance:
Ministry of Corporate Affairs has undertaken a 'Green Initiative in Corporate Governance' to promote paperless compliances by the companies through electronic mode. Members can now receive notices, annual reports and other documents through electronic mode by registering their email addresses with the Company. The Company would like to avail this opportunity for sending notices / annual reports / other documents to the members in the electronic mode to their email addresses already registered and available. To note that members, who opted to receive the documents in electronic mode, are also entitled to receive copies of the documents free of cost, upon receipt of a requisition at any time. As a TVS Group Company, the Company has a strong legacy of fair, transparent and ethical governance practices. The Company's philosophy on corporate governance is founded on the fundamental ideologies of the group viz., Trust, Value and Service.
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Shareholding pattern:
It can be observed from the share holding pattern that majority of the holding is of promoters which is 59%, rest are distributed among FII, DII and Public and Other Holdings which are respectively 5%, 16% and 20%. March11 12.7 2.69 March10 5.29 1.41 March09 -10.18 -2.70 March08 -0.96 -0.30 March07 9.63 3.27
ROE EPS
Financial performance
During the year ended March 2012, TVS Motor Company registered a growth of 7% in sales with overall two-wheeler sales growing from 20.03 lakh units in the previous financial year to 21.47 lakh units. While motorcycle sales during the fiscal increased marginally from 8.32 lakh units in the previous year to 8.44 lakh units in the current fiscal, scooters grew at 13% from 4.66 lakh units in the previous year to 5.25 lakh units in the current fiscal. Three wheeler sales of the company increased marginally from 39,257 units in the previous year to 40,166 units in the year ended 31 March 2012. The company's total revenue grew from Rs.6288 crores in the year ended March 2011 to Rs. 7126 crores in March 2012. Profit Before Tax during the year ended March 2012 grew by 27% increasing from Rs. 248.09 crores in the year ended March 2011 to Rs. 316.46 crores in the current financial year. Profit After Tax during the year ended March 2012 increased by 28% from Rs. 194.58 crores in the corresponding period of the year ended March 2011 to Rs. 249.07 crores in year ended March 2012.
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Financial analysis:
Balance sheet:
While analyzing balance sheet it has been observed that share capital has increased by more than 20 crores, and reserve has shown a fluctuation from 2008 but growing steadily afterwards. They have reduced their total debt obligation by paying of secured loans but they have increased their unsecured loan, which shows they have gained market confidence. They have acquired a company this year. By year on year they are increasing their fixed asset which indicates growth path and strength in their ability. They have finished their long waited project by year on year. Their inventory has jumped by almost 100% , which indicates they may have huge demand in next financial year or they could not sale their product properly. Sundry debtors is increasing YOY which shows they may have less cash in hand or they are having much more confident on consumer that they have given more credit to them. But cash in hand has decreased drastically one of the reasons is increase in debtors and inventory. Their W.C. has decreased due to increase in current liabilities. They are having huge contingent liability.
Income statement:
Company sales turnover has increased more than 2000 crores, the reason may be credit liberal policy which in turn has shown a YOY profit in PBDIT. The net profit has increased by 300%. So their EPS has also increased from last 3 years. Which shows a positive growth for the company, at this point of time company can go for raising fund through equity if they want for their future prospect, it can be observed from the sales figure that company has performed excellent from last few years which has helped them increase total sales turnover
Cash flow analysis:

Cash from operating activity has decreased the reason behind this may be increasing number of debtors and huge inventory in their hand, because of huge inventory carrying cost will also increase which in turn will decrease the profit. They have purchased heavily on YOY thats why their net cash from investment activity is showing a negative figure which is positive for the company. Due to repayment of their loans the net cash use from financing activity has shown a negative figure.
Ratio analysis: Liquidity and solvency ratio 1.Current ratio

Current ratio has decreased from last year which shows the low confidence in payout in current liabilities. the reason behind this is huge number of stock and debtors and uncertain increment in current liability.
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2. Debt equity ratio:

Debt equity ratio has decreased which shows the dependency on outsiders fund has come down and inside funds has got strengthen which indicates a strong capital structure for a company.
3. Debt coverage ratio:

Interest coverage ratio: this has increased which shows company is having more fund in hand to repay the liability.
Management efficiency ratio

Inventory turnover ratio has decreased from last year may be due to the high amount of inventory in hand. Fixed asset turnover ratio has been showing a steady growth which indicate the company is using its fixed asset properly to increase revenue.
Cash flow indication ratio:

Dividend payout ratio has decreased on net profit which may give a negative impact to the investor. Which in turn may effect on the equity fund.
Earning retain ratio:

This has increased more than 100 %. Which shows a positive impact on the financial structure, it indicates they are retaining much more amount than that of last year.
Forecasting:
As we can see the recent scenario due to of high inflation and low GDP growth companies have almost their positive figures and profit, where as TVS motors have shown a steady growth in their company. Which shows they are performing in a good way. Apart from that we can also say as because the sales figure has jumped drastically from last year by giving a positive effect in net profit figure which is the positive sign for a company in long run. As because the EPS has also increased, its a good time to invest in this company. As because the company has acquired huge amount of fixed asset this would also have some future plan or they should try and increase their production capacity which will in turn will give a positive impact on their financial sheet.
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Income statement (INRmn)

Fiscal year ending Total operating income Total operating expenses EBITDA Other income Depreciation EBIT Interest Recurring PBT Net extra ordinary items PBT (reported) Total taxes PAT (reported) (+) Share in assoc. earnings Less: Minority interest Prior period items Net income (reported) Avendus net income Shares outstanding (mn) Avendus dil. shares (mn) Avendus EPS (INR) 11-Mar 62891 58963 3928 113 1073 2968 470 2498 -17 2481 535 1946 0 0 0 1946 1963 475.1 475.1 4.1 03/12f 75851 70381 5470 23 1439 4054 461 3593 0 3593 886 2708 0 0 0 2708 2708 475.1 475.1 5.7 03/13f 85496 79576 5921 23 1469 4475 461 4014 0 4014 1204 2810 0 0 0 2810 2810 475.1 475.1 5.9 03/14f 95919 89548 6371 23 1457 4937 461 4476 0 4476 1343 3133 0 0 0 3133 3133 475.1 475.1 6.6
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Balance sheet (INR mn)

equity capital preference capital reserves and surplus net worth minority interest total debt deffered tax liability total liabilities gross block less: acc. Depreciation net block CWIP Goodwill investments cash inventories debtors loans and advances less: current liabilities less: provisions net working capital total asset 11-Mar 475 0 9519 9994 0 7854 957 18805 19723 10347 9376 574 0 6611 60 5279 2706 3970 8852 920 2244 18805 12-Mar 475 0 11393 11868 0 7854 957 20678 217960 11786 10010 574 0 6611 1760 5495 3223 3975 10051 920 3483 20678 13-Mar 475 0 13336 13812 0 7854 957 22622 2317 13255 9915 574 0 6611 3525 6592 3502 3978 11155 920 5522 22622 14-Mar 475 0 15504 15980 0 7854 957 24790 24544 14712 9832 574 0 6611 6335 6970 4044 3981 12638 920 7773 24790
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Cash flow statement ( INR mn)

11-Mar net profit depriciation deffered tax working capital changes less: other income cash flow from operations capital expenditure Strategic investments Marketable investments Change in other loans & adv. Goodwill paid Other income Cash flow from investing Equity raised Change in borrowings Dividends paid (incl. tax) Others Cash flow from financing Net change in cash 1946 1073 0 883 113 2023 935 -2680 3461 0 0 113 41 0 2179 605 -149 2933 950 12-Mar 2708 1439 0 461 23 4585 2074 0 0 0 0 23 2051 0 0 834 0 834 1700 13-Mar 2810 1469 0 275 23 3981 1374 0 0 0 0 23 1351 0 0 866 0 866 1765 14-Mar 3133 1457 0 560 23 5127 1374 0 0 0 0 23 1351 0 0 965 0 965 2811
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Investment Decision:
As because the company is having steady growth in their sales and profit figure it is expected that if the economic scenario dont take a u turn in next year than profitable place is there for the investors. Risk averse investors can take step cause risk is comparatively low at here. As because the EPS is higher than that of last year the possibility of getting higher return is more than that of last year. For more details and accuracy we need to go for technical analysis.
Valuation:
2005 2006 P/E ratio 11.74 28.49 No. of Outstanding Shares 475.09 PAT 1,946 EPS 4.10 Price of Share 76.49 2007 21.27 2008 26.04 2009 17.33 2010 22.26 2011 14.6 2012 Average 7.67 18.68
CMP of TVS Motor Company is Rs.38.95 and when valuation method use P/E it is found that the price of the stock is Rs.76.49 which seems its undervalued. When seen in long run the 52 week high is Rs.70.14 and low is Rs.31.90. So it can be stated that under current market conditions the volatility in market seems to be affecting the share prices. There has been a good trading in the stock with high volume. So it can be suggested that its BUY for stock at current stages so that profits can be earned in long run.
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INVESTMENT OPPORTUNITIES
Sector Overview The automobile industry in India is one of the countrys major sectors and is the seventh -largest in the world. It accounts for 22% of Indias manufacturing GDP. The Indian automotive industry comprises passenger cars, two-wheelers, three-wheelers and commercial vehicles, with twowheelers dominating the market. More than 75% of the vehicles sold are two wheelers. Collectively, India makes 17.5 million vehicles and exports 2.3 million annually. According to Ministry of Heavy Industry and Public Enterprises, the total turnover of the Indian automobile industry was estimated at USD 73 billion and exports were estimated to be USD 11 billion in the year 201011. The announced cumulative investments in this sector were USD 30 billion during this period. Total FDI inflow into the Indian automobile sector in 20102011 was USD 1,331 million. Cumulative FDI during the period April 2000 to March 2011 was USD 5.93 billion, according to the Department of Industrial Policy and Promotion (DIPP), which is a part of the Ministry of Commerce and Industry.
Policy and Promotion The Indian government encourages foreign investment in the automobile sector and allows 100% FDI under the automatic route. It is a fully delicensed industry, freely allowing imports of automotive components. The main automobile hubs in India are based at Chennai, Gurgaon, Manesar, Pune, Ahmedabad, Halol, Aurangabad, Kolkata, Noida and Bangalore. Chennai is the biggest hub accounting for 60% of Indian auto exports. The auto components industry, although largely concentrated near automobile hubs, is fairly widespread in other parts of the country too. The government has made successive policy changes that allow for stronger growth in the automotive sector. Major among these are: Automotive Mission Plan: The plan has been prepared to accelerate and sustain growth in the automotive sector during the period 20062016. It aims to make India a global automotive hub. This will involve doubling the contribution of the automotive sector to the countrys GDP by taking its turnover to USD 145 billion and providing additional employment to 25 million people with special emphasis on the export of small cars, MUVs, two- and three-wheelers and auto components. National Automotive Testing and R&D Infrastructure Project: This is a USD 400 million initiative of the Government of India and various state governments; it is aimed at creating a state-of-art, dedicated testing, validation and R&D infrastructure across the country.
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Major Players The size and high growth potential of the Indian car market has attracted several foreign players, such as Mercedes Benz, BMW, Volkswagen, Toyota, Honda, Ford, Hyundai and General Motors, among others. Several of these players have expanded operations in India. For instance, Hyundai Motor India Limited (HMIL) is a dominant passenger car manufacturer in India, controlling 14% market share in the passenger vehicles segment. It is the largest passenger car exporter and the second-largest car manufacturer in India. The company sold a total of 616,039 vehicles in the year 201011. It has a fully integrated, state-of-the-art manufacturing plant near Chennai and has also set up a modern multi-million dollar R&D facility at Hyderabad. HMIL currently exports cars to more than 115 countries across the EU, Africa, the Middle East, Latin America and Asia Pacific. Another success story is Honda Siel Cars India Limited (HSCIL). The company was incorporated in December 1995 as a joint venture between Honda Motors of Japan and Siel Limited, an Indian company. The total investment made by the company in India until now is INR 1,620 crore in a plant at Greater Noida in Uttar Pradesh and INR 784 crore in its Tapukara plant, in the state of Rajasthan. HSCILs first state-of-the-art manufacturing unit at Greater Noida was a greenfield project spread across 150 acres (over 600,000 sq. m.). The annual capacity of this facility is 100,000 units. The companys second manufacturing facility at Tapukara is spread over 600 acres and will has an initial production capacity of 60,000 units per annum. Similarly, the high-end luxury car maker Mercedes Benz is also growing at a healthy pace in India, being driven by demand for its C-Class and E-Class vehicles. It sold 7,430 units during the period January 2011 to December 2011. The strong sales, in 2011, of SLS AMG at INR 2.5 crore; G 55 AMG at INR 1.1 crore and the new SLK 350 and E-Class Cabriolets, reaffirms the high demand for sports cars from the Mercedes-Benz portfolio and also the growing preference for the brand among Indian consumers. Major Indian companies present in the automobiles market include Tata Motors, Maruti Suzuki India, Mahindra & Mahindra, Ashok Leyland, Hero Honda Motors and Bajaj Auto. Tata Motors is Indias largest automobile company, making commercial and passenger vehicles. It is world's fourth-largest truck manufacturer and the world's second-largest bus manufacturer. Maruti Suzuki is India's largest passenger car company, accounting for 45% share of the Indian car market. Hero Honda is worlds largest two-wheeler manufacturing company in the world. Its market share in the Indian two-wheeler segment is 41%. Bajaj Auto is the worlds fourth-largest two-wheeler and three-wheeler manufacturer.
Sector Outlook According to the Society of Indian Automobile Manufacturers (SIAM), the automobile sector is expected to grow by up to 13% in 2011. In the longer term, the passenger vehicle segment is expected to grow to nine million units and the two-wheeler segment to 30 million units by 2020,
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according to Ministry of Heavy Industries and Public Enterprises. SIAM estimates that car sales in India will grow to five million vehicles by 2015 and nine million by 2020 annually. In fact, by 2050, Indian roads will top the world in car volumes, running a total of 611 million vehicles. Going forward, there are several advantages to investing in the Indian auto sector, the most important of which include the following: Structural advantages: Over half the countrys population is in the working age group and the economy has shown strong growth over most part of the last decade. These factors, in turn, translate into beneficial spillovers for the Indian automobile sector: 1. Indian banks provide easy finance schemes for the segment 2. The country has low-cost, high-skilled manpower with the second-largest pool of engineering talent in the world Auto components: India has a strong auto components industry as is evident from the fact that this sub-sector accounts for about 2% of Indias national income and had growth rate of 19.2% in 200910. The country has emerged as an outsourcing hub for international companies such as Ford, General Motors, Daimler Chrysler, Fiat, Volkswagen and Toyota. Steel: India is the fifth-largest producer of steel in the world and among the lowest-cost ones as well. It is slated to become the second-largest steel producer, more than doubling its capacity to 124 million tonnes as part of the push being given to assist overall infrastructure development. Domestic Sales The overall growth in domestic sales during April-July 2012 was 9.34 percent over same period last year. Passenger Vehicles segment grew at 10.20 percent during April-July 2012 over same period last year. Passenger Cars grew by 5.55 percent, Utility Vehicles grew by 53.66 percent and Vans grew by (-12.73) percent during April-July 2012 as compared to same period last year. The overall Commercial Vehicles segment registered growth of 4.74 percent in April-July 2012 as compared to the same period last year. While Medium & Heavy Commercial Vehicles (M&HCVs) registered negative growth at (-12.75) percent, Light Commercial Vehicles grew at 18.02 percent. Three Wheelers sales recorded marginal growth at 0.81 percent in April-July 2012. Passenger Carriers grew by 4.93 percent during April-July 2012 and Goods Carriers registered degrowth at (-13.62) percent during this period. Two Wheelers registered a growth of 9.75 percent during April-July 2012. Mopeds, Motorcycles and Scooters grew by 4.02 percent, 6.35 percent and 26.71 percent respectively in the period of April-July 2012.
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Exports During April-July 2012 overall automobile exports registered negative growth at (-4.03) percent. While Passenger Vehicles and Commercial Vehicles both grew by 9.14 percent. Two & Three wheelers declined by (-1.00) and (-39.23) percent respectively in AprilJuly 2012 compared to the same period last year.
CONCLUSION
It can be seen that automobile sector growth in the previous year 2011-12 was lower due to high interest rates, high cost of petrol and inflation rates. The cost of petrol increased due to deregulation of petrol prices as a result the sales of petrol cars reduced yoy. High cost of petrol was due to increased crude oil cost. During year 2011-12 cost of petrol increased with 10-15% in all states. It was also observed sale of diesel cars increased in India which act as subsidy to petrol cars and diesel being unregulated the cost of diesel is still under control. Also it was observed that people are more into substitute which being CNG and LPG. Regarding investment in Auto Sector the industry is growing at a steady rate of 10-12% and many major car players from around the world are ready to invest in India. It was also observed that premium car manufacturers like Audi, Merc, BMW are having at a high rate due to higher demand in Indian market. They have introduced cars in the range of 25-30 lakhs to attract customers. After doing Investment research regarding auto companies in India it is found that they have been performing excellent except some internal problems. Even the growth at foreign countries have been exceptional which has brought them international named all around. Companies on which research is performed it is seen that Maruti Suzuki, Tata Motors, Ashok Leyland, Hero Motors have performed satisfactorily but future prospects for these companies in excellent. These are market leaders in their respective segments of car which they are into.
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REFERENCE
www.moneycontrol.com www.moneysight.com www.myiris.com www.bloomberg.com www.tatamotors.com www.eicher.in www.ashokleyland.com CRISIL Research report
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Automobile Industry Security Report

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A SECURITY ANALYSIS REPORT ON

Submitted toProf. Urmil Shah

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

Fuel Efficiency Segment Competitiveness Fuel Prices Demands Emerging markets

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

Also see, on a slow drive? (Graphic)

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

4. Shareholder Returns- ROE and Earnings growth

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

(Rs. In Crore) FY11 FY12

145 13,723 13,868 170 164 96 140 14,438

ITM Business School, Navi Mumbai

CASH FLOW (Rs. In Crore) FY11

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

28.89 1,932 66.87 1153.16

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

4. Shareholder Returns- ROE and Earnings growth-

ROE EPS FINANCIAL ANALYSIS Ratio Analysis:

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

174,511 199,178 216,019 267,863 229,528 302,977 240,528 315,091

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

2. SHAREHOLDING PATTERN- ROE AND EARNINGS GROWTH

ITM Business School, Navi Mumbai

No. Name of the Shareholder

Total Shares held

1,027,237,424 253,991,776 56,766,917

Shares as % of Total No. of Shares 38.61 9.55 2.13

40,022,554 51,236,220 30,150,000 37,724,344 45,479,459 1,027,237,424 1,276,081,570 357,357,640

1.5 1.93 1.13 1.42 1.71 38.61 47.96 13.43

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

Y-o-Y growth in Buses YEAR 2010-11 2011-12 2012-13 2013-14(projected) 2014-15(projected)

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

CASH FLOW STATEMENT

ITM Business School, Navi Mumbai

10.03 12.69 17.55 11.97 22.58

ITM Business School, Navi Mumbai

3. Shareholders Return ROE & Earnings Growth

ITM Business School, Navi Mumbai

7. Forecasting 1. Profit and Loss Statement

ITM Business School, Navi Mumbai

ITM Business School, Navi Mumbai

3. Cash Flow Statement

P/E ratio No. of Outstanding Shares PAT EPS Price of Share

199.7 26,406 132.23 2125.07